Published: 2022-08-05 00:00:00 ET

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2022

or

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______ to ______

Commission File Number 001-38736

WestRock Company

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware		37-1880617
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
1000 Abernathy Road NE, Atlanta, Georgia		30328
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (770) 448-2193

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
Common Stock, par value $0.01 per share	WRK	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 ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Class		Outstanding as of July 22, 2022
Common Stock, $0.01 par value		254,298,051

 

 

 

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WESTROCK COMPANY

INDEX

 

 

		Page
PART I	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Statements of Income for the three and nine months ended June 30, 2022 and 2021	3
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended June 30, 2022 and 2021	4
	Condensed Consolidated Balance Sheets at June 30, 2022 and September 30, 2021	5
	Condensed Consolidated Statements of Equity for the three and nine months ended June 30, 2022 and 2021	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2022 and 2021	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
Item 4.	Controls and Procedures	52
PART II	OTHER INFORMATION	54
Item 1.	Legal Proceedings	54
Item 1A.	Risk Factors	54
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 6.	Exhibits	54
	Index to Exhibits	55

 

2

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PART I: FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (UNAUDITED)

WESTROCK COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
(In millions, except per share data)		2022				2021				2022				2021
Net sales		$	5,519.7			$	4,816.3			$	15,854.0			$	13,655.6
Cost of goods sold			4,360.3				3,886.4				12,894.3				11,223.2
Gross profit			1,159.4				929.9				2,959.7				2,432.4
Selling, general and administrative, excluding    intangible amortization			504.3				450.9				1,450.3				1,327.1
Selling, general and administrative intangible    amortization			87.5				88.8				263.6				269.3
(Gain) loss on disposal of assets			(0.2	)			1.0				(11.6	)			3.8
Multiemployer pension withdrawal income			—				—				(3.3	)			—
Mineral rights impairment			26.0				—				26.0				—
Restructuring and other costs			0.6				6.9				366.3				19.8
Operating profit			541.2				382.3				868.4				812.4
Interest expense, net			(78.5	)			(102.5	)			(237.7	)			(279.8	)
Loss on extinguishment of debt			—				—				(8.2	)			(1.1	)
Pension and other postretirement non-service income			38.7				31.5				118.3				101.4
Other (expense) income, net			(7.2	)			6.4				(0.7	)			13.8
Equity in income of unconsolidated entities			18.3				10.7				57.3				29.4
Income before income taxes			512.5				328.4				797.4				676.1
Income tax expense			(132.7	)			(77.4	)			(193.1	)			(158.2	)
Consolidated net income			379.8				251.0				604.3				517.9
Less: Net income attributable to noncontrolling    interests			(1.9	)			(0.9	)			(4.2	)			(3.3	)
Net income attributable to common stockholders		$	377.9			$	250.1			$	600.1			$	514.6
Basic earnings per share attributable to common    stockholders		$	1.48			$	0.94			$	2.30			$	1.94
Diluted earnings per share attributable to common    stockholders		$	1.47			$	0.93			$	2.28			$	1.93
Basic weighted average shares outstanding			255.6				266.5				261.2				264.7
Diluted weighted average shares outstanding			257.4				269.0				263.2				267.0

 

See Accompanying Notes to Condensed Consolidated Financial Statements

3

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WESTROCK COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
(In millions)		2022				2021				2022				2021
Consolidated net income		$	379.8			$	251.0			$	604.3			$	517.9
Other comprehensive (loss) income, net of tax:
Foreign currency translation (loss) gain			(195.4	)			143.6				(82.0	)			253.3
Derivatives:
Deferred loss on cash flow hedges			(23.5	)			—				(23.5	)			(0.1	)
Reclassification adjustment of net loss on   cash flow hedges included in earnings			—				1.5				—				4.4
Defined benefit pension and other postretirement    benefit plans:
Net actuarial gain arising during period			—				—				0.1				—
Amortization and settlement recognition of net    actuarial loss, included in pension cost			2.1				7.4				4.9				18.8
Amortization and settlement recognition of prior    service cost, included in pension cost			1.4				1.3				4.3				3.4
Other comprehensive (loss) income, net of tax			(215.4	)			153.8				(96.2	)			279.8
Comprehensive income			164.4				404.8				508.1				797.7
Less: Comprehensive income attributable to    noncontrolling interests			(1.7	)			(1.2	)			(4.3	)			(4.0	)
Comprehensive income attributable to common    stockholders		$	162.7			$	403.6			$	503.8			$	793.7

 

See Accompanying Notes to Condensed Consolidated Financial Statements

4

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WESTROCK COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(In millions, except per share data)		June 30, 2022				September 30, 2021
ASSETS
Current assets:
Cash and cash equivalents		$	305.4			$	290.9
Accounts receivable (net of allowances of $73.3 and $68.1)			2,824.9				2,586.9
Inventories			2,300.5				2,173.3
Other current assets			569.7				597.6
Assets held for sale			4.2				10.9
Total current assets			6,004.7				5,659.6
Property, plant and equipment, net			10,058.4				10,570.1
Goodwill			5,928.8				5,959.2
Intangibles, net			3,031.3				3,318.8
Restricted assets held by special purpose entities			1,254.9				1,260.5
Prepaid pension asset			764.4				674.3
Other assets			1,843.2				1,811.8
Total Assets		$	28,885.7			$	29,254.3
LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt		$	387.8			$	168.8
Accounts payable			2,259.7				2,123.7
Accrued compensation and benefits			586.8				656.8
Other current liabilities			877.1				694.8
Total current liabilities			4,111.4				3,644.1
Long-term debt due after one year			7,635.1				8,025.3
Pension liabilities, net of current portion			236.5				254.7
Postretirement benefit liabilities, net of current portion			134.8				133.7
Non-recourse liabilities held by special purpose entities			1,120.2				1,127.3
Deferred income taxes			2,814.2				2,944.4
Other long-term liabilities			1,352.1				1,433.1
Commitments and contingencies (Note 13)
Redeemable noncontrolling interests			4.9				1.7
Equity:
Preferred stock, $0.01 par value; 30.0 million shares authorized; no    shares outstanding			—				—
Common Stock, $0.01 par value; 600.0 million shares authorized;    254.3 million and 265.0 million shares outstanding at June 30,    2022 and September 30, 2021, respectively			2.5				2.7
Capital in excess of par value			10,616.4				11,058.8
Retained earnings			1,934.4				1,607.9
Accumulated other comprehensive loss			(1,095.4	)			(999.1	)
Total stockholders’ equity			11,457.9				11,670.3
Noncontrolling interests			18.6				19.7
Total equity			11,476.5				11,690.0
Total Liabilities and Equity		$	28,885.7			$	29,254.3

 

See Accompanying Notes to Condensed Consolidated Financial Statements

5

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WESTROCK COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

 

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
(In millions, except per share data)		2022				2021				2022				2021
Number of Shares of Common Stock Outstanding:
Balance at beginning of period			259.3				265.9				265.0				260.4
Issuance of common stock, net of stock received for    tax withholdings			0.4				1.0				1.9				6.5
Purchases of common stock			(5.4	)			—				(12.6	)			—
Balance at end of period			254.3				266.9				254.3				266.9
Common Stock:
Balance at beginning of period		$	2.6			$	2.7			$	2.7			$	2.6
Issuance of common stock, net of stock received for    tax withholdings			—				—				—				0.1
Purchases of common stock			(0.1	)			—				(0.2	)			—
Balance at end of period			2.5				2.7				2.5				2.7
Capital in Excess of Par Value:
Balance at beginning of period			10,793.5				11,057.5				11,058.8				10,916.3
Compensation expense under share-based plans			34.7				23.4				74.4				74.3
Issuance of common stock, net of stock received for    tax withholdings			12.1				38.6				7.6				128.9
Purchases of common stock			(224.2	)			—				(524.3	)			—
Other			0.3				(1.1	)			(0.1	)			(1.1	)
Balance at end of period			10,616.4				11,118.4				10,616.4				11,118.4
Retained Earnings:
Balance at beginning of period			1,662.5				1,186.0				1,607.9				1,031.6
Adoption of accounting standards (1)			—				—				—				(3.8	)
Net income attributable to common stockholders			377.9				250.1				600.1				514.6
Dividends declared (per share - $0.25, $0.24, $0.75    and $0.64) (2)			(64.8	)			(65.0	)			(198.5	)			(171.1	)
Issuance of common stock, net of stock received for    tax withholdings			(0.1	)			(0.3	)			(2.1	)			(0.5	)
Purchases of common stock			(41.1	)			—				(73.0	)			—
Balance at end of period			1,934.4				1,370.8				1,934.4				1,370.8
Accumulated Other Comprehensive Loss:
Balance at beginning of period			(880.2	)			(1,194.3	)			(999.1	)			(1,319.9	)
Other comprehensive (loss) income, net of tax			(215.2	)			153.5				(96.3	)			279.1
Balance at end of period			(1,095.4	)			(1,040.8	)			(1,095.4	)			(1,040.8	)
Total Stockholders’ equity			11,457.9				11,451.1				11,457.9				11,451.1
Noncontrolling Interests: (3)
Balance at beginning of period			18.7				18.1				19.7				16.9
Net (loss) income			(0.1	)			0.2				(0.6	)			1.4
Distributions and adjustments to noncontrolling interests			—				1.1				(0.5	)			1.1
Balance at end of period			18.6				19.4				18.6				19.4
Total equity		$	11,476.5			$	11,470.5			$	11,476.5			$	11,470.5

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

6

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WESTROCK COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

		Nine Months Ended
		June 30,
(In millions)		2022				2021
Operating activities:
Consolidated net income		$	604.3			$	517.9
Adjustments to reconcile consolidated net income to net cash provided    by operating activities:
Depreciation, depletion and amortization			1,117.4				1,094.9
Deferred income tax benefit			(114.4	)			(53.6	)
Share-based compensation expense			74.3				74.4
401(k) match and company contribution in common stock			2.5				112.8
Pension and other postretirement funding more than expense (income)			(101.8	)			(82.6	)
Cash surrender value increase in excess of premiums paid			(2.5	)			(48.8	)
Gain on sale of sawmill			—				(16.5	)
Gain on sale of investment			—				(16.0	)
Other impairment adjustments			314.3				22.6
Mineral rights impairment			26.0				—
(Gain) loss on disposal of plant and equipment and other, net			(12.3	)			3.8
Other, net			(66.4	)			(25.1	)
Change in operating assets and liabilities, net of acquisitions and    divestitures:
Accounts receivable			(260.0	)			(333.4	)
Inventories			(263.9	)			(130.8	)
Other assets			(178.4	)			(149.7	)
Accounts payable			120.0				197.2
Income taxes			129.4				70.0
Accrued liabilities and other			91.6				365.3
Net cash provided by operating activities			1,480.1				1,602.4
Investing activities:
Capital expenditures			(569.5	)			(505.4	)
Cash paid for purchase of businesses, net of cash received			(7.0	)			—
Proceeds from corporate owned life insurance			29.8				26.6
Proceeds from sale of sawmill			—				58.5
Proceeds from sale of investment			—				29.5
Proceeds from sale of property, plant and equipment			25.6				4.3
Proceeds from property, plant and equipment insurance settlement			1.7				1.7
Other, net			5.2				(0.7	)
Net cash used for investing activities			(514.2	)			(385.5	)
Financing activities:
Additions to revolving credit facilities			—				435.0
Repayments of revolving credit facilities			(100.0	)			(355.0	)
Additions to debt			496.3				258.1
Repayments of debt			(781.5	)			(1,131.5	)
Changes in commercial paper, net			182.8				—
Other debt additions, net			7.1				16.3
Issuances of common stock, net of related tax withholdings			1.7				14.7
Purchases of common stock			(600.0	)			—
Cash dividends paid to stockholders			(195.9	)			(169.8	)
Other, net			23.7				(9.1	)
Net cash used for financing activities			(965.8	)			(941.3	)
Effect of exchange rate changes on cash, cash equivalents    and restricted cash			14.4				23.1
Increase in cash, cash equivalents and restricted cash			14.5				298.7
Cash, cash equivalents and restricted cash at beginning of period			290.9				251.1
Cash, cash equivalents and restricted cash at end of period		$	305.4			$	549.8

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

7

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WESTROCK COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Unless the context otherwise requires, “we”, “us”, “our”, “WestRock” and “the Company” refer to the business of WestRock Company, its wholly-owned subsidiaries and its partially-owned consolidated subsidiaries.

We are a multinational provider of sustainable fiber-based paper and packaging solutions. We partner with our customers to provide sustainable paper and packaging solutions that help them win in the marketplace. Our team members support customers around the world from our operating and business locations in North America, South America, Europe, Asia and Australia.

 

 

 

 

 

 

 

21

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Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

 

 

 

 

 

 

31

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Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 

 

 

32

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto included herein and our audited Consolidated Financial Statements and Notes thereto for the fiscal year ended September 30, 2021, as well as the information under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are part of the Fiscal 2021 Form 10-K. The following discussion includes certain non-GAAP financial measures. See our reconciliations of non-GAAP financial measures in the “Non-GAAP Financial Measures” section below.

OVERVIEW

We are a multinational provider of sustainable fiber-based paper and packaging solutions. We partner with our customers to provide sustainable paper and packaging solutions that help them win in the marketplace. Our team members support customers around the world from our operating and business locations in North America, South America, Europe, Asia and Australia.

Presentation

 

Effective October 1, 2021, we reorganized our segment reporting to four reportable segments: Corrugated Packaging, Consumer Packaging, Global Paper and Distribution. Also, effective October 1, 2021, our measure of segment profitability for each reportable segment is Adjusted EBITDA in accordance with ASC 280, “Segment Reporting” because it is the measure used by our CODM to make decisions regarding allocation of resources and to assess segment performance. Certain items are not allocated to our operating segments and, thus, the information that our CODM uses to make operating decisions and assess performance does not reflect such amounts. Adjusted EBITDA is defined as pre-tax earnings of a reportable segment before depreciation, depletion and amortization, and excludes the following items our CODM does not consider part of our segment performance: gain on sale of certain closed facilities, multiemployer pension withdrawal income, mineral rights impairment, restructuring and other costs, non-allocated expenses, interest expense, net, loss on extinguishment of debt, other (expense) income, net, and other adjustments. Management believes excluding these items is useful in the evaluation of operating performance from period to period because they are not representative of our ongoing operations or are items our CODM does not consider part of our reportable segments. We have recast prior periods presented to conform with the new segment structure. These changes did not impact our consolidated financial statements. In connection with the reorganization of our reportable segments, we changed the amount of previously non-allocated expenses. See “Note 6. Segment Information” for additional information.

EXECUTIVE SUMMARY

 

Net sales of $5,519.7 million for the third quarter of fiscal 2022 increased $703.4 million, or 14.6%, compared to the third quarter of fiscal 2021. This increase was primarily due to the impact of higher selling price/mix that was partially offset by the unfavorable impact of foreign currency.

 

Net income attributable to common stockholders of $377.9 million for the third quarter of fiscal 2022 increased $127.8 million, or 51.1%, compared to the third quarter of fiscal 2021. The impact of higher selling price/mix was partially offset by increased cost inflation, higher operating costs and lower volumes. Consolidated Adjusted EBITDA of $1,005.5 million for the third quarter of fiscal 2022 increased $194.5 million, or 24.0%, compared to $811.0 million in the third quarter of fiscal 2021. Net income in the quarter was also impacted by a $26.0 million pre-tax non-cash mineral rights impairment that was largely offset by $18.7 million of insurance recoveries related to the fiscal 2021 ransomware incident and winter weather event (the “Events”). The insurance recoveries were primarily for business interruption costs and were recorded as a reduction of Cost of goods sold.

 

Earnings per diluted share were $1.47 and $0.93 in the three months ended June 30, 2022 and 2021, respectively. Adjusted Earnings Per Diluted Share were $1.54 and $1.00 in the three months ended June 30, 2022 and 2021, respectively. See the discussion and tables under “Non-GAAP Financial Measures” below with respect to Consolidated Adjusted EBITDA and Adjusted Earnings Per Diluted Share.

 

Net cash provided by operating activities in the nine months ended June 30, 2022 and June 30, 2021 was $1,480.1 million and $1,602.4 million, respectively. The decline was primarily due to $379.9 million of greater

 

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working capital usage compared to the prior year period. The greater working capital usage was primarily due to actions taken in the prior year to preserve cash due to the high uncertainty during the COVID pandemic, such as the payment during the prior year period of certain bonuses and 401(k) match in stock rather than in cash, and the payment of certain deferred payroll taxes that relate to relief offered under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) in the current year period. During the nine months ended June 30, 2022, we invested $569.5 million in capital expenditures and returned $795.9 million in capital to stockholders, specifically $600.0 million in stock repurchases and $195.9 million in dividend payments. During the nine months ended June 30, 2022, debt decreased $171.2 million due to repayments primarily using net cash provided by operating activities that exceeded aggregate capital expenditures and capital returned to stockholders in the form of dividends and share repurchases.

 

In the fourth quarter of fiscal 2022, we have approximately 45,000 tons of scheduled maintenance downtime compared to 12,000 in the prior year period. We expect the continued flow through of previously published price increases, and that those increases will more than offset inflation. We expect higher inflation costs sequentially, driven by higher natural gas costs and slightly higher recycled fiber costs, partially offset by lower virgin fiber costs. We also expect increased logistics costs. As a result of these, and other factors, we expect higher earnings compared to the prior year period.

 

A detailed review of our performance appears below under “Results of Operations”.

 

COVID Pandemic

 

The global impact of the COVID pandemic continues to evolve and our first priority has been and continues to be the health and safety of our teammates. We have taken, and continue to take, actions to protect the health and safety of our teammates during COVID and we have incurred and continue to incur costs for safety, cleaning and other items related to COVID. The pandemic has affected our operational and financial performance to varying degrees and the extent of its effect on our operational and financial performance will continue to depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration, scope and severity of the pandemic (including due to new or continuing variants), the actions taken to contain or mitigate its impact (including the distribution and effectiveness of vaccines and vaccine boosters), and the direct and indirect economic effects of the pandemic and related containment measures and government responses, among others.

Our net sales have been negatively impacted by COVID, to varying degrees, primarily in the last half of fiscal 2020, and we have experienced and are currently experiencing higher supply chain costs and labor shortages, in part due to the impacts of COVID. Productivity, primarily in our Corrugated Packaging segment, has been negatively impacted by COVID-related absenteeism, particularly in the second quarter of fiscal 2022. While the negative impact in the third quarter diminished, we may experience COVID-related absenteeism in future periods, to varying degrees, depending upon the impact of new or continuing variants. The Company’s assessment of the future magnitude and duration of COVID, as well as other factors, may change and could result in changes in our accounting estimates and assumptions used to prepare our financial statements in conformity with GAAP. In the first quarter of fiscal 2021 we recorded $22.0 million of relief payments to employees.

Ransomware Incident

 

As previously disclosed, on January 23, 2021 we detected a ransomware incident impacting certain of our systems. Promptly upon our detection of this incident, we initiated response and containment protocols and our security teams, supplemented by leading cyber defense firms, worked to remediate this incident. We undertook extensive efforts to identify, contain and recover from this incident quickly and securely. Our teams worked to maintain our business operations and minimize the impact on our customers and teammates. In our second quarter of fiscal 2021 Form 10-Q, we announced that all systems were back in service. All of our mills and converting locations began producing and shipping paper and packaging at pre-ransomware levels in March 2021 or earlier.

 

As previously disclosed, our mill system production was approximately 115,000 tons lower than planned for the quarter ended March 31, 2021 as a result of this incident. We estimate the pre-tax income impact of the lost sales and operational disruption of this incident on our operations in the second quarter of fiscal 2021 was approximately $50 million, as well as approximately $20 million of ransomware recovery costs, primarily professional fees. In addition, we incurred approximately $9 million of ransomware recovery costs in the third quarter of fiscal 2021. In the fourth quarter of fiscal 2021, we recorded a $15 million credit for preliminary recoveries – approximately $10

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million as a reduction of SG&A excluding intangible amortization and approximately $5 million as a reduction of cost of goods sold. In the three and nine months ended June 30, 2022, we received additional business interruption recoveries of $10 million and $20 million, respectively, related to the ransomware incident, which we recorded as a reduction of Cost of goods sold and presented in Net cash provided by operating activities on our condensed consolidated statements of cash flows.

While we expect to recover substantially all of the remaining ransomware losses from cyber and business interruption insurance from various carriers in future periods, the recovery process proceeds from carrier to carrier up the coverage layers after the preceding layer is resolved, which lends itself to a lengthy process. Additionally, discussions and/or disputes over the extent of insurance coverage for claims are not uncommon and generally take time to be resolved.

See “Note 1. Description of Business and Summary of Significant Accounting Policies — Ransomware Incident” of the Notes to Consolidated Financial Statements section in the Fiscal 2021 Form 10-K for additional information.

 

RESULTS OF OPERATIONS

The following table summarizes our consolidated results for the three and nine months ended June 30, 2022 and June 30, 2021 (in millions):

 

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2022				2021				2022				2021
Net sales		$	5,519.7			$	4,816.3			$	15,854.0			$	13,655.6
Cost of goods sold			4,360.3				3,886.4				12,894.3				11,223.2
Gross profit			1,159.4				929.9				2,959.7				2,432.4
Selling, general and administrative, excluding    intangible amortization			504.3				450.9				1,450.3				1,327.1
Selling, general and administrative intangible    amortization			87.5				88.8				263.6				269.3
(Gain) loss on disposal of assets			(0.2	)			1.0				(11.6	)			3.8
Multiemployer pension withdrawal income			—				—				(3.3	)			—
Mineral rights impairment			26.0				—				26.0				—
Restructuring and other costs			0.6				6.9				366.3				19.8
Operating profit			541.2				382.3				868.4				812.4
Interest expense, net			(78.5	)			(102.5	)			(237.7	)			(279.8	)
Loss on extinguishment of debt			—				—				(8.2	)			(1.1	)
Pension and other postretirement non-service    income			38.7				31.5				118.3				101.4
Other (expense) income, net			(7.2	)			6.4				(0.7	)			13.8
Equity in income of unconsolidated entities			18.3				10.7				57.3				29.4
Income before income taxes			512.5				328.4				797.4				676.1
Income tax expense			(132.7	)			(77.4	)			(193.1	)			(158.2	)
Consolidated net income			379.8				251.0				604.3				517.9
Less: Net income attributable to noncontrolling    interests			(1.9	)			(0.9	)			(4.2	)			(3.3	)
Net income attributable to common stockholders		$	377.9			$	250.1			$	600.1			$	514.6

 

 

Net Sales (Unaffiliated Customers)

 

(In millions, except percentages)		First Quarter				Second Quarter				Third Quarter				Nine Months Ended 6/30				Fourth Quarter				Fiscal Year
Fiscal 2021		$	4,401.5			$	4,437.8			$	4,816.3			$	13,655.6			$	5,090.5			$	18,746.1
Fiscal 2022		$	4,952.2			$	5,382.1			$	5,519.7			$	15,854.0
% Change			12.5	%			21.3	%			14.6	%			16.1	%

 

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Net sales in the third quarter of fiscal 2022 increased $703.4 million compared to the third quarter of fiscal 2021. This increase was primarily due to the impact of higher selling price/mix that was partially offset by the unfavorable impact of foreign currency.

 

Net sales in the nine months ended June 30, 2022 increased $2,198.4 million compared to the prior year period. This increase was primarily due to the impact of higher selling price/mix and higher volumes which were partially offset by the unfavorable impact of foreign currency. In the first nine months of fiscal 2021, we lost an estimated $189.1 million of net sales associated with the Events, all in the second quarter.

 

The change in net sales by reportable segment is outlined below for each reportable segment.

Cost of Goods Sold

 

(In millions, except percentages)		First Quarter				Second Quarter				Third Quarter				Nine Months Ended 6/30				Fourth Quarter				Fiscal Year
Fiscal 2021		$	3,648.6			$	3,688.2			$	3,886.4			$	11,223.2			$	4,092.6			$	15,315.8
(% of Net Sales)			82.9	%			83.1	%			80.7	%			82.2	%			80.4	%			81.7	%
Fiscal 2022		$	4,155.6			$	4,378.4			$	4,360.3			$	12,894.3
(% of Net Sales)			83.9	%			81.4	%			79.0	%			81.3	%

 

The $473.9 million increase in cost of goods sold in the third quarter of fiscal 2022 compared to the prior year quarter was primarily due to increased cost inflation and higher operating costs. Cost inflation consisted primarily of higher energy, freight, wage and benefit costs, recycled fiber, virgin fiber and chemical costs.

 

The $1,671.1 million increase in cost of goods sold in the nine months ended June 30, 2022 compared to the prior year period was primarily due increased cost inflation, higher operating costs and increased planned downtime including maintenance outages, which were partially offset by the prior year period negative impact of the Events and related recoveries in fiscal 2022. Cost inflation consisted primarily of higher recycled fiber, energy, wage and benefit costs, freight, virgin fiber and chemical costs. In the first nine months of fiscal 2021, we recorded $19.7 million of one-time recognition awards to our teammates who work in manufacturing and operations.

In the third quarter of fiscal 2022, we entered into various natural gas commodity derivatives that were designated as cash flow hedges for accounting purposes and are scheduled to be settled over the next twelve months. See “Note 14. Equity and Other Comprehensive Income (Loss)” of the Notes to Condensed Consolidated Financial Statements for additional information about the natural gas commodity derivatives.

 

We discuss our operations in greater detail below for each reportable segment, as applicable.

Selling, General and Administrative Excluding Intangible Amortization

 

(In millions, except percentages)		First Quarter				Second Quarter				Third Quarter				Nine Months Ended 6/30				Fourth Quarter				Fiscal Year
Fiscal 2021		$	417.8			$	458.4			$	450.9			$	1,327.1			$	432.2			$	1,759.3
(% of Net Sales)			9.5	%			10.3	%			9.4	%			9.7	%			8.5	%			9.4	%
Fiscal 2022		$	452.9			$	493.1			$	504.3			$	1,450.3
(% of Net Sales)			9.1	%			9.2	%			9.1	%			9.1	%

 

Selling, general and administrative expenses (“SG&A”) excluding intangible amortization increased $53.4 million in the third quarter of fiscal 2022 compared to the prior year quarter. The increase was primarily due to $25.5 million of increased compensation and benefits, $7.6 million of travel and entertainment costs and $7.5 million of bad debt costs.

 

SG&A excluding intangible amortization increased $123.2 million in the nine months ended June 30, 2022 compared to the prior year period. The increase was primarily due to $51.1 million of increased compensation and benefits, which would have been higher had the prior year period not included a $9.6 million acceleration of stock-based compensation in connection with the departure of our former Chief Executive Officer. In addition, we incurred

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$17.4 million of increased bad debt expense, $17.1 million of increased software/computer expenses and $15.5 million of increased travel and entertainment costs. The increased travel and entertainment costs are still well below pre-pandemic levels.

Selling, General and Administrative Intangible Amortization

SG&A intangible amortization was $87.5 million and $88.8 million in the third quarter of fiscal 2022 and 2021, respectively. SG&A intangible amortization was $263.6 million and $269.3 million in the nine months ended June 30, 2022 and 2021, respectively. The expense primarily represents the amortization of customer relationship intangibles acquired in business combinations.

(Gain) Loss on Disposal of Assets

In the three and nine months ended June 30, 2022, we recorded a gain on disposal of assets of $0.2 million and a gain on disposal of assets of $11.6 million, respectively. The gain was primarily due to the sale of a previously closed facility in the first quarter of fiscal 2022. In the three and nine months ended June 30, 2021, we recorded a loss on disposal of assets of $1.0 million and $3.8 million, respectively.

Mineral Rights Impairment

In the three and nine months ended June 30, 2022, we recorded a $26.0 million pre-tax non-cash impairment of certain mineral rights driven by a lack of new leasing or development activity on the related properties for an extended period of time. With the impairment, we have no remaining mineral rights at June 30, 2022.

Restructuring and Other Costs

 

We recorded aggregate pre-tax restructuring and other costs of $0.6 million and $6.9 million in the third quarter of fiscal 2022 and 2021, respectively, and $366.3 million and $19.8 million in the nine months ended June 30, 2022 and 2021, respectively. The charges in the nine months ended June 30, 2022 were primarily driven by our second quarter decision to permanently cease operations at our Panama City, FL mill.

 

These amounts are not comparable since the timing and scope of the individual actions associated with a given restructuring, acquisition, integration or divestiture vary. We generally expect the integration of a closed facility’s assets and production with other facilities to enable the receiving facilities to better leverage their fixed costs while eliminating fixed costs from the closed facility. See “Note 3. Restructuring and Other Costs” of the Notes to Condensed Consolidated Financial Statements for additional information.

Interest Expense, net

Interest expense, net for the third quarter of fiscal 2022 was $78.5 million compared to $102.5 million for the prior year quarter. The decrease was primarily due a $12.7 million reduction in interest expense associated with the remeasurement of our multiemployer pension liabilities for the change in interest rates in the third quarter of fiscal 2022 compared to a similar $7.7 million increase in the third quarter of fiscal 2021. In addition, interest expense, net declined due to lower debt levels compared to the prior year period that was partially offset by higher interest rates on debt in the current year period.

Interest expense, net for the nine months ended June 30, 2022 was $237.7 million compared to $279.8 million for the prior year period. The decrease was primarily due to a net $26.9 million reduction in interest expense associated with the remeasurement of our multiemployer pension liabilities for the change in interest rates between the two nine month periods. In addition, interest expense, net declined due to lower debt levels compared to the prior year period that was partially offset by higher interest rates on debt in the nine months ended June 30, 2022.

Loss on Extinguishment of Debt

Loss on extinguishment of debt for the nine months ended June 30, 2022 was $8.2 million related to our March 22, 2022 redemption of $350 million aggregate principal amount of our 4.00% senior notes due March 2023. Loss on extinguishment of debt for the nine months ended June 30, 2021 was $1.1 million.

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Pension and Other Postretirement Non-Service Income

Pension and other postretirement non-service income for the third quarter of fiscal 2022 was $38.7 million compared to $31.5 million for the third quarter of fiscal 2021. Pension and other postretirement non-service income for the nine months ended June 30, 2022 was $118.3 million compared to $101.4 million for the nine months ended June 30, 2021. These increases were primarily due to the increase in plan asset balances used to determine the expected return on plan assets for fiscal 2022. Customary pension and other postretirement (income) costs are included in our segment results. See “Note 4. Retirement Plans” of the Notes to Condensed Consolidated Financial Statements for more information.

Other (Expense) Income, net

Other (expense) income, net for the third quarter of fiscal 2022 was expense of $7.2 million compared to income of $6.4 million in the third quarter of fiscal 2021. The variance was primarily driven by impact of foreign currency on the respective periods.

Other (expense) income, net for the nine months ended June 30, 2022 was expense of $0.7 million compared to income of $13.8 million for the nine months ended June 30, 2021. The nine months ended June 30, 2021 primarily included a $16.5 million gain on sale of the Summerville, SC sawmill and a $16.0 million gain on sale of our Rosenbloom legacy cost method investment, which were partially offset by a $22.5 million charge associated with not exercising an option to purchase an additional equity interest in Grupo Gondi.

On July 27, 2022, we announced our entry into an agreement to acquire the remaining 67.7% interest in Grupo Gondi. See “Note 16. Subsequent Events” of the Notes to Condensed Consolidated Financial Statements for more information regarding the announcement.

Provision for Income Taxes

We recorded income tax expense of $132.7 million for the three months ended June 30, 2022 compared to $77.4 million for the three months ended June 30, 2021. The effective tax rate for the three months ended June 30, 2022 was 25.9%, while the effective tax rate for the three months ended June 30, 2021 was 23.6%.

We recorded income tax expense of $193.1 million for the nine months ended June 30, 2022 compared to $158.2 million for the nine months ended June 30, 2021. The effective tax rate for the nine months ended June 30, 2022 was 24.2%, while the effective tax rate for the nine months ended June 30, 2021 was 23.4%.

See “Note 5. Income Taxes” of the Notes to Condensed Consolidated Financial Statements for the primary factors impacting our effective tax rates.

Corrugated Packaging Segment

 

Corrugated Packaging Shipments

 

Corrugated Packaging shipments are expressed as a tons equivalent in thousands of tons, which includes external and intersegment shipments from our corrugated converting operations, principally for the sale of corrugated containers and other corrugated products. Tons sold from period to period may be impacted by customer conversions to lower basis weight products. In addition, we disclose North American Corrugated Packaging shipments in billion square feet ("BSF") and millions of square feet ("MMSF") per shipping day. We have presented the Corrugated Packaging shipments in this manner because we believe investors, potential investors, securities

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analysts and others find this breakout useful when evaluating our operating performance. Quantities in the table may not sum across due to trailing decimals.

		First Quarter				Second Quarter				Third Quarter				Nine Months Ended 6/30				Fourth Quarter				Fiscal Year
Fiscal 2021
Corrugated Packaging Shipments -    thousands of tons			1,729.4				1,662.7				1,709.6				5,101.7				1,678.7				6,780.4
North American Corrugated Packaging    Shipments - BSF			25.3				24.6				25.3				75.3				24.5				99.8
North American Corrugated Packaging Per    Shipping Day - MMSF			415.3				391.2				401.7				402.6				383.2				397.6
Fiscal 2022
Corrugated Packaging Shipments -    thousands of tons			1,634.5				1,662.1				1,648.7				4,945.3
North American Corrugated Packaging    Shipments - BSF			24.5				24.7				24.5				73.7
North American Corrugated Packaging Per    Shipping Day - MMSF			401.0				385.8				389.3				391.9

 

Corrugated Packaging Segment – Net Sales and Adjusted EBITDA

 

(In millions, except percentages)		Net Sales (1)				Adjusted EBITDA				Adjusted EBITDA Margin
Fiscal 2021
First Quarter		$	2,019.5			$	347.6				17.2	%
Second Quarter			2,022.4				321.1				15.9
Third Quarter			2,154.7				363.9				16.9
Nine Months Ended June 30, 2021			6,196.6				1,032.6				16.7
Fourth Quarter			2,203.9				361.4				16.4
Total		$	8,400.5			$	1,394.0				16.6	%
Fiscal 2022
First Quarter		$	2,220.0			$	288.9				13.0	%
Second Quarter			2,319.0				328.7				14.2
Third Quarter			2,382.5				385.2				16.2
Nine Months Ended June 30, 2022		$	6,921.5			$	1,002.8				14.5	%

 

Net Sales (Aggregate) — Corrugated Packaging Segment

Net sales for the Corrugated Packaging segment increased $227.8 million in the third quarter of fiscal 2022 compared to the prior year quarter. The increase primarily consisted of $300.1 million of higher selling price/mix partially offset by $84.1 million of lower volumes.

Net sales for the Corrugated Packaging segment increased $724.9 million in the nine months ended June 30, 2022 compared to the prior year period. The increase primarily consisted of $850.5 million of higher selling price/mix that was partially offset by $148.8 million of lower volumes. The current period volume comparison was improved by the $39.2 million negative impact in the prior year period from the Events.

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Adjusted EBITDA — Corrugated Packaging Segment

 

Corrugated Packaging segment Adjusted EBITDA in the third quarter of fiscal 2022 increased $21.3 million compared to the prior year quarter primarily due to an estimated $300.3 million margin impact from higher selling price/mix that was largely offset by an estimated $218.1 million of increased cost inflation, $34.8 million of lower volumes and $33.2 million higher operating costs. Productivity was negatively impacted by higher supply chain costs and labor shortages, in part due to the impacts of COVID.

 

Corrugated Packaging segment Adjusted EBITDA in the nine months ended June 30, 2022 decreased $29.8 million compared to the prior year period primarily due to an estimated $647.8 million of increased cost inflation, $169.1 million higher operating costs, $82.3 million of lower volumes excluding the Events in the prior year period and a $12.9 million increase in planned downtime including maintenance outages. These items were largely offset by a $852.5 million margin impact from higher selling price/mix and the $27.4 million favorable impact on the current period of the Events due to recoveries in the current year period compared to the expense from the Events in the prior year period. Productivity was negatively impacted by higher supply chain costs and labor shortages, in part due to the impacts of COVID, as well as heavy planned mill maintenance in the first half of fiscal 2022 and COVID related absenteeism primarily in the second quarter of fiscal 2022.

 

Consumer Packaging Segment

 

Consumer Packaging Shipments

 

Consumer Packaging shipments are expressed as a tons equivalent in thousands of tons, which includes external and intersegment shipments from our consumer converting operations, principally for the sale of folding cartons, interior partitions and other consumer products. We have presented the Consumer Packaging shipments in this manner because we believe investors, potential investors, securities analysts and others find this breakout useful when evaluating our operating performance. Quantities in the table may not sum across due to trailing decimals.

		First Quarter				Second Quarter				Third Quarter				Nine Months Ended 6/30				Fourth Quarter				Fiscal Year
Fiscal 2021
Consumer Packaging Shipments -    thousands of tons			374.9				379.1				386.4				1,140.4				389.5				1,529.9
Fiscal 2022
Consumer Packaging Shipments -    thousands of tons			374.2				401.3				399.3				1,174.8

 

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Consumer Packaging Segment – Net Sales and Adjusted EBITDA

 

(In millions, except percentages)		Net Sales (1)				Adjusted EBITDA				Adjusted EBITDA Margin
Fiscal 2021
First Quarter		$	1,062.5			$	175.3				16.5	%
Second Quarter			1,080.6				164.1				15.2
Third Quarter			1,132.2				183.3				16.2
Nine Months Ended June 30, 2021			3,275.3				522.7				16.0
Fourth Quarter			1,158.6				198.1				17.1
Total		$	4,433.9			$	720.8				16.3	%
Fiscal 2022
First Quarter		$	1,138.7			$	169.3				14.9	%
Second Quarter			1,250.6				205.8				16.5
Third Quarter			1,270.2				234.9				18.5
Nine Months Ended June 30, 2022		$	3,659.5			$	610.0				16.7	%

 

Net Sales (Aggregate) — Consumer Packaging Segment

The $138.0 million increase in net sales for the Consumer Packaging segment in the third quarter of fiscal 2022 compared to the prior year quarter was primarily due to $122.4 million of higher selling price/mix and $58.3 million of higher volumes. These increases were partially offset by $44.0 million of unfavorable foreign currency impacts.

The $384.2 million increase in net sales for the Consumer Packaging segment in the nine months ended June 30, 2022 compared to the prior year period was primarily due to $298.6 million of higher selling price/mix and $176.0 million impact of higher volumes, including the $12.1 million negative impact from the Events in the prior year period. These increases were partially offset by $86.4 million of unfavorable foreign currency impacts.

Adjusted EBITDA — Consumer Packaging Segment

Consumer Packaging segment Adjusted EBITDA in the third quarter of fiscal 2022 increased $51.6 million compared to the prior year quarter primarily due to an estimated $122.0 million margin impact from higher selling price/mix and $8.6 million of higher volumes. These items were partially offset by an estimated $76.9 million of increased cost inflation and $7.5 million of unfavorable foreign currency impacts.

Consumer Packaging segment Adjusted EBITDA in the nine months ended June 30, 2022 increased $87.3 million compared to the prior year period primarily due to an estimated $283.1 million margin impact from higher selling price/mix, $45.7 million of higher volumes excluding the Events, $18.6 million of increased productivity and other operational items, and a $6.8 million favorable impact from the Events due to recoveries in the current year period compared to the expense from the Events in the prior year period. These items were partially offset by an estimated $245.9 million of increased cost inflation, $14.9 million of unfavorable foreign currency impacts and a $5.8 million increase in planned downtime including maintenance outages.

 

Global Paper Segment

 

Global Paper Shipments

 

Global Paper shipments in thousands of tons includes the sale of containerboard, paperboard, market pulp and specialty papers (including kraft papers and saturating kraft) to external customers. The shipment data table excludes gypsum paperboard liner tons produced by our Seven Hills Paperboard LLC joint venture in Lynchburg, VA since it is not consolidated. We have presented the Global Paper shipments in this manner because we believe

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investors, potential investors, securities analysts and others find this breakout useful when evaluating our operating performance. Quantities in the table may not sum across due to trailing decimals.

		First Quarter				Second Quarter				Third Quarter				Nine Months Ended 6/30				Fourth Quarter				Fiscal Year
Fiscal 2021
Global Paper Shipments - thousands    of tons			1,461.7				1,482.7				1,588.6				4,533.0				1,738.7				6,271.6
Fiscal 2022
Global Paper Shipments - thousands    of tons			1,515.9				1,658.2				1,632.7				4,806.8

 

Global Paper Segment – Net Sales and Adjusted EBITDA

 

(In millions, except percentages)		Net Sales (1)				Adjusted EBITDA				Adjusted EBITDA Margin
Fiscal 2021
First Quarter		$	1,090.9			$	151.7				13.9	%
Second Quarter			1,130.6				159.6				14.1
Third Quarter			1,299.2				265.2				20.4
Nine Months Ended June 30, 2021			3,520.7				576.5				16.4
Fourth Quarter			1,462.3				307.2				21.0
Total		$	4,983.0			$	883.7				17.7	%
Fiscal 2022
First Quarter		$	1,352.6			$	232.4				17.2	%
Second Quarter			1,538.1				308.6				20.1
Third Quarter			1,610.3				399.0				24.8
Nine Months Ended June 30, 2022		$	4,501.0			$	940.0				20.9	%

 

Net Sales (Aggregate) — Global Paper Segment

The $311.1 million increase in net sales for the Global Paper segment in the third quarter of fiscal 2022 compared to the prior year quarter was primarily due to $297.0 million of higher selling price/mix and $38.7 million of higher volumes.

The $980.3 million increase in net sales for the Global Paper segment in the nine months ended June 30, 2022 compared to the prior year period was primarily due to $854.4 million of higher selling price/mix and $210.4 million of higher volumes, including the $134.8 million negative impact on volumes in the prior year period from the Events. These increases were partially offset by the absence of $33.7 million of sales from the sawmill we sold in the second quarter fiscal 2021.

Adjusted EBITDA — Global Paper Segment

Global Paper segment Adjusted EBITDA in the third quarter of fiscal 2022 increased $133.8 million compared to the prior year quarter primarily due to a $297.0 million margin impact from higher selling price/mix, $14.4 million of higher volumes, $9.1 million of favorable foreign currency impacts and a $5.9 million decrease in planned downtime including maintenance outages. These items were partially offset by an estimated $162.9 million of increased cost inflation and $37.0 million higher operating costs.

Global Paper segment Adjusted EBITDA in the nine months ended June 30, 2022 increased $363.5 million compared to the prior year period primarily due to a $854.4 million margin impact from higher selling price/mix, a $70.6 million favorable impact from the Events due to recoveries in the current year period compared to the expense

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from the Events in the prior year period and $24.1 million of higher volumes excluding the Events. These items were partially offset by an estimated $515.7 million of increased cost inflation, $56.7 million higher operating costs and a $14.8 million increase in planned downtime including maintenance outages.

Distribution Segment

 

Distribution Shipments

 

Distribution shipments are expressed as a tons equivalent in thousands of tons, which includes external and intersegment shipments from our distribution and display assembly operations. We have presented the Distribution shipments in this manner because we believe investors, potential investors, securities analysts and others find this breakout useful when evaluating our operating performance. Quantities in the table may not sum across due to trailing decimals.

		First Quarter				Second Quarter				Third Quarter				Nine Months Ended 6/30				Fourth Quarter				Fiscal Year
Fiscal 2021
Distribution Shipments - thousands of tons			56.4				53.6				64.5				174.5				53.1				227.6
Fiscal 2022
Distribution Shipments - thousands of tons			48.5				50.8				59.8				159.1

 

Distribution Segment – Net Sales and Adjusted EBITDA

 

(In millions, except percentages)		Net Sales (1)				Adjusted EBITDA				Adjusted EBITDA Margin
Fiscal 2021
First Quarter		$	303.8			$	16.4				5.4	%
Second Quarter			280.3				11.0				3.9
Third Quarter			322.3				18.0				5.6
Nine Months Ended June 30, 2021			906.4				45.4				5.0
Fourth Quarter			348.4				23.4				6.7
Total		$	1,254.8			$	68.8				5.5	%
Fiscal 2022
First Quarter		$	324.8			$	6.5				2.0	%
Second Quarter			362.3				28.0				7.7
Third Quarter			357.7				19.2				5.4
Nine Months Ended June 30, 2022		$	1,044.8			$	53.7				5.1	%

 

Net Sales (Aggregate) — Distribution Segment

The $35.4 million increase in net sales for the Distribution segment in the third quarter of fiscal 2022 compared to the prior year quarter was primarily due to $40.8 million of higher selling price/mix partially offset by $5.7 million of lower volumes.

The $138.4 million increase in net sales for the Distribution segment in the nine months ended June 30, 2022 compared to the prior year period was primarily due to $96.3 million of higher selling price/mix and $38.0 million of higher volumes, primarily related to fulfillment of a large healthcare order in the second quarter of fiscal 2022.

Adjusted EBITDA — Distribution Segment

Distribution segment Adjusted EBITDA in the third quarter of fiscal 2022 increased $1.2 million compared to the prior year quarter primarily due to a $40.8 million margin impact from higher selling price/mix and a $9.4 million

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increase in productivity and other operational items. These items were largely offset by an estimated $47.2 million of increased cost inflation and $2.1 million of lower volumes.

Distribution segment Adjusted EBITDA in the nine months ended June 30, 2022 increased $8.3 million compared to the prior year quarter primarily due a $96.3 million margin impact from higher selling price/mix and $19.6 million from higher volumes. These items were largely offset by an estimated $103.0 million of increased cost inflation and $4.9 million higher operating costs.

LIQUIDITY AND CAPITAL RESOURCES

We fund our working capital requirements, capital expenditures, mergers, acquisitions and investments, restructuring activities, dividends and stock repurchases from net cash provided by operating activities, borrowings under our credit facilities, proceeds from the sale of receivables under our accounts receivable sales agreements, proceeds from the sale of property, plant and equipment removed from service and proceeds received in connection with the issuance of debt and equity securities. See “Note 11. Debt” of the Notes to Condensed Consolidated Financial Statements and “Note 13. Debt” of the Notes to Consolidated Financial Statements section in the Fiscal 2021 Form 10-K for more information regarding our debt. Funding for our domestic operations in the foreseeable future is expected to come from sources of liquidity within our domestic operations, including cash and cash equivalents, and available borrowings under our credit facilities. As such, our foreign cash and cash equivalents are not expected to be a key source of liquidity to our domestic operations.

 

Cash and cash equivalents were $305.4 million at June 30, 2022 and $290.9 million at September 30, 2021. Approximately two-thirds of the cash and cash equivalents at June 30, 2022 were held outside of the U.S. The proportion of cash and cash equivalents held outside of the U.S. generally varies from period to period. At June 30, 2022 and September 30, 2021, total debt was $8,022.9 million and $8,194.1 million, respectively, $387.8 million and $168.8 million of which was short-term at June 30, 2022 and September 30, 2021, respectively. Included in our total debt at June 30, 2022 was $179.6 million of non-cash acquisition-related step-up. During the nine months ended June 30, 2022, debt decreased $171.2 million due to repayments primarily using net cash provided by operating activities that exceeded aggregate capital expenditures and capital returned to stockholders in the form of dividends and share repurchases.

 

At June 30, 2022, we had approximately $3.5 billion of availability under our long-term committed credit facilities and cash and cash equivalents. Our primary availability is under our revolving credit facilities and Receivables Securitization Facility. This liquidity may be used to provide for ongoing working capital needs and for other general corporate purposes, including acquisitions, dividends and stock repurchases.

 

On March 22, 2022, we redeemed $350 million aggregate principal amount of our 4.00% senior notes due March 2023 primarily using borrowings under our Receivables Securitization Facility and recorded an $8.2 million loss on extinguishment of debt.

Certain restrictive covenants govern our maximum availability under our credit facilities. We test and report our compliance with all of these covenants as required by these facilities and were in compliance with all of these covenants at June 30, 2022.

At June 30, 2022, we had $58.9 million of outstanding letters of credit not drawn upon.

 

We use 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. We describe these programs below.

We engage 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 us. Receivables transferred under these customer-based SCF programs generally meet the requirements to be accounted for as sales in accordance with guidance under ASC 860, “Transfers and Servicing” resulting in derecognition of such receivables from our consolidated balance sheets. Receivables involved with these customer-based SCF programs constitute approximately 2% of our annual net sales. In addition, we have 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 — Accounts Receivable Sales Agreements” for a discussion of our monetization facilities.

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Our working capital management strategy includes working with our suppliers to revisit terms and conditions, including the extension of payment terms. Our current payment terms with the majority of our suppliers generally range from payable upon receipt to 120 days and vary for items such as the availability of cash discounts. We do not believe our payment terms will be shortened significantly in the near future, and we do not expect our 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 our suppliers, at their sole discretion, to sell their receivables from us to the financial institutions on a non-recourse basis at a rate that leverages our credit rating and thus might be more beneficial to our suppliers. We and our 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 us goods or services and issue the associated invoices to us 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. Our 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 us under SCF programs and we have no economic interest in a supplier’s decision to participate in the SCF program. Therefore, amounts due to our suppliers that elect to participate in SCF programs are included in the line items Accounts payable and Other current liabilities in our condensed consolidated balance sheets and the activity is reflected in net cash provided by operating activities in our condensed consolidated statements of cash flows. Based on correspondence with the financial institutions that are involved with our 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 16% to 18% of our accounts payable balance.

We also participate in certain vendor financing and commercial card programs to support our travel and entertainment expenses and smaller vendor purchases. Amounts outstanding under these programs are classified as debt primarily because we receive the benefit of extended payment terms and a rebate from the financial institution that we would not have otherwise received without the financial institutions’ involvement. We also have the Receivables Securitization Facility that allows for borrowing availability based on the eligible underlying accounts receivable and compliance with certain covenants. See “Note 11. Debt” for a discussion of our Receivables Securitization Facility and the amount outstanding under our vendor financing and commercial card programs.

Cash Flow Activity

 

		Nine Months Ended
(In millions)		June 30,
		2022				2021
Net cash provided by operating activities		$	1,480.1			$	1,602.4
Net cash used for investing activities		$	(514.2	)		$	(385.5	)
Net cash used for financing activities		$	(965.8	)		$	(941.3	)

 

Net cash provided by operating activities during the nine months ended June 30, 2022 decreased $122.3 million compared to the nine months ended June 30, 2021, primarily due to $379.9 million of greater working capital usage compared to the prior year period. The greater working capital usage in the nine months ended June 30, 2022 was primarily due to actions taken in the prior year to preserve cash due to the high uncertainty during the COVID pandemic, such as the payment during the prior year period of certain bonuses and 401(k) match in stock rather than in cash, and the payment of certain deferred payroll taxes that relate to relief offered under the CARES Act in the current year.

Net cash used for investing activities of $514.2 million in the nine months ended June 30, 2022 consisted primarily of $569.5 million for capital expenditures that was partially offset by $29.8 million of proceeds from corporate owned life insurance and $25.6 million of proceeds from the sale of property, plant and equipment, primarily for the sale of a previously closed facility. Net cash used for investing activities of $385.5 million in the nine months ended June 30, 2021 consisted primarily of $505.4 million for capital expenditures that were partially offset by $58.5 million of proceeds from the sale of the Summerville, SC sawmill, $29.5 million of proceeds from the sale of investments and $26.6 million of proceeds from corporate owned life insurance.

With the completion of certain of our strategic projects in fiscal 2021, including the paper machine at our Florence, SC mill and the Tres Barras mill upgrade project, we had previously expected capital expenditures to be approximately $900 million to $1.0 billion in fiscal 2022. At this level of capital investment, we expect that we will

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continue to invest in safety, environmental and maintenance projects while also making investments to support productivity and growth in our business. Based on investments made as of the nine months ended June 30, 2022 and supply chain and other delays, we now expect to invest approximately $900 million in fiscal 2022. However, it is possible that our capital expenditure assumptions may change, project completion dates may change, or we may decide to invest a different amount depending upon opportunities we identify, or changes in market conditions, or to comply with environmental or other regulatory changes.

In the nine months ended June 30, 2022, net cash used for financing activities of $965.8 million consisted primarily of share repurchases of $600.0 million, cash dividends paid to stockholders of $195.9 million and a net decrease in debt of $195.3 million. In the nine months ended June 30, 2021, net cash used for financing activities of $941.3 million consisted primarily of a net decrease in debt of $777.1 million and cash dividends paid to stockholders of $169.8 million.

On July 29, 2022, our board of directors declared a quarterly dividend of $0.25 per share. In May 2022, February 2022 and November 2021, we paid quarterly dividends of $0.25 per share, respectively, representing a $1.00 per share annualized dividend or an increase of 25% since our February 2021 dividend. In May 2021, February 2021 and November 2020, we paid quarterly dividends of $0.24, $0.20 and $0.20 per share, respectively.

In July 2015, our board of directors authorized a repurchase program of up to 40.0 million shares of our Common Stock, representing approximately 15% of our outstanding Common Stock as of July 1, 2015. On May 4, 2022, our board of directors authorized a new repurchase program of up to 25.0 million shares of our Common Stock, plus any unutilized shares left from the July 2015 authorization. The 25.0 million shares represents an additional authorization of approximately 10% of our outstanding Common Stock. The shares of Common Stock may be repurchased from time to time in open market or privately negotiated transactions. The timing, manner, price and amount of repurchases will be determined by management at its discretion based on factors, including the market price of our Common Stock, general economic and market conditions and applicable legal requirements. The repurchase program may be commenced, suspended or discontinued at any time. Pursuant to the programs, in the nine months ended June 30, 2022, we repurchased approximately 12.6 million shares of our Common Stock for an aggregate cost of $597.5 million. The amount reflected as purchased in the condensed consolidated statements of cash flows varies due to the timing of share settlement. In the nine months ended June 30, 2021, we repurchased no shares of Common Stock. As of June 30, 2022, we had approximately 29.0 million shares of Common Stock available for repurchase under the program.

The U.S. federal, state and foreign net operating losses and other U.S. federal and state tax credits available to us aggregated approximately $59 million in future potential reductions of U.S. federal, state and foreign cash taxes at the end of the previous fiscal year. These items are primarily for foreign and state net operating losses and credits that generally will be utilized between fiscal 2022 and 2040. Our cash tax rate is highly dependent on our taxable income, utilization of net operating losses and credits, changes in tax laws or tax rates, capital expenditures and other factors. Barring significant changes in our current assumptions, including changes in tax laws or tax rates, forecasted taxable income, levels of capital expenditures and other items, we expect our fiscal 2022 cash tax rate will be slightly lower than our income tax rate and our cash tax rate in fiscal 2023 will be driven slightly higher than our income tax rate.

 

Our pension plans in the U.S. are overfunded and we have a $0.8 billion pension asset on our condensed consolidated balance sheet as of June 30, 2022. We made contributions of $15.1 million to our pension and supplemental retirement plans during the nine months ended June 30, 2022. Based on current facts and assumptions, we expect to contribute approximately $17 million to our U.S. and non-U.S. pension plans in fiscal 2022. We have made contributions and expect to continue to make contributions in the coming years to our pension plans in order to ensure that our funding levels remain adequate in light of projected liabilities and to meet the requirements of the Pension Protection Act of 2006 and other regulations. Our estimates are based on current factors, such as discount rates and expected return on plan assets. It is possible that our assumptions may change, actual market performance may vary or we may decide to contribute different amounts.

 

In the normal course of business, we evaluate our potential exposure to MEPPs, including with respect to potential withdrawal liabilities. In fiscal 2018, we submitted formal notification to withdraw from PIUMPF and Central States, and recorded estimated withdrawal liabilities for each. We also have liabilities associated with other MEPPs that we, or legacy companies, have withdrawn from in the past. Going forward, we expect to pay approximately $12 million a year in withdrawal liabilities, excluding accumulated funding deficiency demands and any settlement payments. With respect to certain other MEPPs, in the event we withdraw from one or more of the MEPPs in the

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future, it is reasonably possible that we may incur withdrawal liabilities in connection with such withdrawals. Our estimate of any such withdrawal liability, both individually and in the aggregate, is not material for the remaining plans in which we participate.

 

At June 30, 2022 and September 30, 2021, we had recorded withdrawal liabilities of $219.6 million and $247.1 million, respectively, including liabilities associated with PIUMPF’s accumulated funding deficiency demands. The decrease in withdrawal liabilities in fiscal 2022 as compared to the end of fiscal 2021 was primarily due to an increase in interest rates. See “Note 4. Retirement Plans — MEPPs” of the Notes to Condensed Consolidated Financial Statements for more information regarding these liabilities. See also Item 1A. “Risk Factors — We May Incur Withdrawal Liability and/or Increased Funding Requirements in Connection with MEPPs” in our Fiscal 2021 Form 10-K.

We anticipate that we will be able to fund our capital expenditures, interest payments, dividends and stock repurchases, pension payments, working capital needs, note repurchases, restructuring activities, repayments of current portion of long-term debt and other corporate actions for the foreseeable future from cash generated from operations, borrowings under our credit facilities, proceeds from our accounts receivable sales agreements, proceeds from the issuance of debt or equity securities or other additional long-term debt financing, including new or amended facilities. In addition, we continually review our capital structure and conditions in the private and public debt markets in order to optimize our mix of indebtedness. In connection with these reviews, we may seek to refinance existing indebtedness to extend maturities, reduce borrowing costs or otherwise improve the terms and composition of our indebtedness.

Guarantor Summarized Financial Information

WRKCo, Inc. (the “Issuer”), a wholly owned subsidiary of Parent (as defined below), has issued the following debt securities pursuant to offerings registered under the Securities Act of 1933, as amended (collectively for purposes of this subsection, the “Notes”):

 

Aggregate Principal Amount  (in millions)				Stated Coupon Rate				Maturity Date		Referred to as:
$	500				3.000	%		September 2024		the 2024 Notes
$	600				3.750	%		March 2025		the 2025 Notes
$	750				4.650	%		March 2026		the 2026 Notes
$	500				3.375	%		September 2027		the 2027 Notes
$	600				4.000	%		March 2028		the 2028 Notes
$	500				3.900	%		June 2028		the June 2028 Notes
$	750				4.900	%		March 2029		the 2029 Notes
$	500				4.200	%		June 2032		the 2032 Notes
$	600				3.000	%		June 2033		the June 2033 Notes

 

Upon issuance, the Notes maturing in 2024, 2025, 2027 and March 2028 were fully and unconditionally guaranteed by WestRock RKT, LLC (“RKT”) and WestRock MWV, LLC (“MWV”, and together with RKT, the “Guarantor Subsidiaries”). On November 2, 2018, pursuant to the Agreement and Plan of Merger, dated as of January 28, 2018, among WRKCo, KapStone Paper and Packaging Corporation (“KapStone”), WestRock Company (formerly known as Whiskey Holdco, Inc.), Whiskey Merger Sub, Inc. and Kola Merger Sub, Inc., the Company acquired all of the outstanding shares of KapStone through a transaction in which: (i) Whiskey Merger Sub, Inc. merged with and into WRKCo, with WRKCo surviving the merger as a wholly owned subsidiary of the Company and (ii) Kola Merger Sub, Inc. merged with and into KapStone, with KapStone surviving the merger as a wholly owned subsidiary of the Company (together, the “KapStone Acquisition”). On November 2, 2018, in connection with the KapStone Acquisition, Whiskey Holdco, Inc. became the direct parent of the Issuer, changed its name to WestRock Company (“Parent”) and fully and unconditionally guaranteed these Notes. The remaining Notes were issued by the Issuer subsequent to the consummation of the KapStone Acquisition and were fully and unconditionally guaranteed at the time of issuance by the Parent and the Guarantor Subsidiaries. Accordingly, each series of the Notes is fully and unconditionally guaranteed on a joint and several basis by the Parent and the

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Guarantor Subsidiaries (together, the “Guarantors”). Collectively, the Issuer and the Guarantors are the “Obligor Group”.

 

Each series of Notes and the related guarantees constitute unsecured unsubordinated obligations of the applicable obligor. Each series of Notes and the related guarantees ranks equally in right of payment with all of the applicable obligor’s existing and future unsecured and unsubordinated debt; ranks senior in right of payment to all of the applicable obligor’s existing and future subordinated debt; is effectively junior to the applicable obligor’s existing and future secured debt to the extent of the value of the assets securing such debt; and is structurally subordinated to all of the existing and future liabilities of each subsidiary of the applicable obligor (that is not itself an obligor) that does not guarantee such Notes.

 

The indentures governing each series of Notes contain covenants that, among other things, limit our ability and the ability of our subsidiaries to grant liens on our assets and enter into sale and leaseback transactions. In addition, the indentures limit, as applicable, the ability of the Issuer and Guarantors to merge, consolidate or sell, convey, transfer or lease our or their properties and assets substantially as an entirety. The covenants contained in the indentures do not restrict the Company’s ability to pay dividends or distributions to stockholders.

 

The guarantee obligations of the Guarantors under the Notes are also subject to certain limitations and terms similar to those applicable to other guarantees of similar instruments, including that (i) the guarantees are subject to fraudulent transfer and conveyance laws and (ii) the obligations of each Guarantor under its guarantee of each series of Notes will be limited to the maximum amount as will result in the obligations of such Guarantor under its guarantee of such Notes not to be deemed to constitute a fraudulent conveyance or fraudulent transfer under federal or state law.

 

Under each indenture governing one or more series of the Notes, a Guarantor Subsidiary will be automatically and unconditionally released from its guarantee upon consummation of any transaction permitted under the applicable indenture resulting in such Guarantor Subsidiary ceasing to be an obligor (either as issuer or guarantor). Under the indentures, the guarantee of the Parent will be automatically released and will terminate upon the merger of the Parent with or into the Issuer or another guarantor, the consolidation of the Parent with the Issuer or another guarantor or the transfer of all or substantially all of the assets of the Parent to the Issuer or a guarantor. In addition, if the Issuer exercises its defeasance or covenant defeasance option with respect to the Notes of a series in accordance with the terms of the applicable indenture, each guarantor will be automatically and unconditionally released from its guarantee of the Notes of such series and all its obligations under the applicable indenture.

 

The Issuer and each Guarantor are holding companies that conducts substantially all of their business through subsidiaries. Accordingly, repayment of the Issuer’s indebtedness, including the Notes, is dependent on the generation of cash flow by the Issuer’s and each Guarantor’s subsidiaries, as applicable, and their ability to make such cash available to the Issuer and the Guarantors, as applicable, by dividend, debt repayment or otherwise. The Issuer’s and the Guarantors’ subsidiaries may not be able to, or be permitted to, make distributions to enable them to make payments in respect of their obligations, including with respect to the Notes in the case of the Issuer and the guarantees in the case of the Guarantors. Each of the Issuer’s and the Guarantors’ subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit the Issuer’s and the Guarantors’ ability to obtain cash from their subsidiaries. In the event that the Issuer and the Guarantors do not receive distributions from their subsidiaries, the Issuer and the Guarantors may be unable to make required principal and interest payments on their obligations, including with respect to the Notes and the guarantees.

 

Pursuant to amended Rule 3-10 of Regulation S-X, the summarized financial information below is presented for the Obligor Group on a combined basis after the elimination of intercompany balances and transactions among the Obligor Group and equity in earnings from and investments in the non-Guarantor Subsidiaries. The summarized financial information below should be read in conjunction with the Company’s unaudited Condensed Consolidated Financial Statements contained herein, as the summarized financial information may not necessarily be indicative of results of operations or financial position had the subsidiaries operated as independent entities.

 

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SUMMARIZED STATEMENT OF OPERATIONS

 

		Nine Months Ended
(In millions)		June 30, 2022
Net sales to unrelated parties		$	1,318.4
Net sales to non-Guarantor Subsidiaries		$	880.1
Gross profit		$	685.7
Interest expense, net with non-Guarantor Subsidiaries		$	(63.4	)
Net income and net income attributable to the Obligor Group		$	156.7

 

SUMMARIZED BALANCE SHEETS

 

(In millions)		June 30, 2022				September 30, 2021
ASSETS
Total current assets		$	260.4			$	310.4
Noncurrent amounts due from non-    Guarantor Subsidiaries		$	298.7			$	306.1
Other noncurrent assets (1)			1,860.0				1,980.5
Total noncurrent assets		$	2,158.7			$	2,286.6
LIABILITIES
Current amounts due to non-    Guarantor Subsidiaries		$	1,888.8			$	2,281.4
Other current liabilities			393.1				130.4
Total current liabilities		$	2,281.9			$	2,411.8
Noncurrent amounts due to non-    Guarantor Subsidiaries		$	3,097.5			$	3,437.4
Other noncurrent liabilities			6,901.8				7,296.6
Total noncurrent liabilities		$	9,999.3			$	10,734.0

 

New Accounting Standards

See “Note 1. Basis of Presentation and Significant Accounting Policies” of the Notes to Condensed Consolidated Financial Statements for a description of recent accounting pronouncements.

 

Non-GAAP Financial Measures

We report our financial results in accordance with GAAP. However, management believes certain non-GAAP financial measures provide our management, board of directors, investors, potential investors, securities analysts and others with additional meaningful financial information that should be considered when assessing our ongoing performance. Management also uses these non-GAAP financial measures in making financial, operating and planning decisions, and in evaluating our performance. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our GAAP results. The non-GAAP financial measures we present may differ from similarly captioned measures presented by other companies.

We use the non-GAAP financial measures “Adjusted Net Income” and “Adjusted Earnings Per Diluted Share”. Management believes these measures provide our management, board of directors, investors, potential investors, securities analysts and others with useful information to evaluate our performance because they exclude restructuring and other costs and other specific items that management believes are not indicative of the ongoing operating results of the business. We and our board of directors use this information to evaluate our performance relative to other periods. We believe that the most directly comparable GAAP measures to Adjusted Net Income

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and Adjusted Earnings Per Diluted Share are Net income attributable to common stockholders and Earnings per diluted share, respectively.

Set forth below is a reconciliation of the non-GAAP financial measure Adjusted Earnings Per Diluted Share to Earnings per diluted share, the most directly comparable GAAP measure (in dollars per share) for the periods indicated.

 

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2022				2021				2022				2021
Earnings per diluted share		$	1.47			$	0.93			$	2.28			$	1.93
Restructuring and other items			—				0.02				1.05				0.05
Mineral rights impairment			0.08				—				0.08				—
Loss on extinguishment of debt			—				—				0.02				0.01
Accelerated depreciation on certain plant closures			0.02				—				0.02				—
Losses at closed facilities, transition and start-up    costs			0.01				0.01				0.01				0.01
Ransomware recovery costs			—				0.02				—				0.08
COVID relief payments			—				—				—				0.06
Grupo Gondi option			—				—				—				0.06
Accelerated compensation ‒ former CEO			—				—				—				0.04
MEPP liability adjustment due to interest rates			(0.04	)			0.02				(0.08	)			—
Gain on sale of certain closed facilities			—				—				(0.04	)			—
Gain on sale of investment			—				—				—				(0.05	)
Gain on sale of sawmill			—				—				—				(0.03	)
Adjusted Earnings Per Diluted Share		$	1.54			$	1.00			$	3.34			$	2.16

 

The as reported results in the table below for Pre-Tax, Tax and Net of Tax are equivalent to the line items “Income before income taxes”, “Income tax expense” and “Consolidated net income”, respectively, as reported on the Condensed Consolidated Statements of Income. Set forth below are reconciliations of Adjusted Net Income to the most directly comparable GAAP measure, Net income attributable to common stockholders (represented in the table below as the GAAP results for Consolidated net income (i.e. Net of Tax) less net income attributable to Noncontrolling interests), for the periods indicated (in millions):

 

		Three Months Ended June 30, 2022												Nine Months Ended June 30, 2022
		Pre-Tax				Tax				Net of Tax				Pre-Tax				Tax				Net of Tax
As reported		$	512.5			$	(132.7	)		$	379.8			$	797.4			$	(193.1	)		$	604.3
Restructuring and other items			0.6				(0.1	)			0.5				366.3				(89.7	)			276.6
Mineral rights impairment			26.0				(6.4	)			19.6				26.0				(6.4	)			19.6
Loss on extinguishment of debt			—				—				—				8.2				(2.0	)			6.2
Accelerated depreciation on certain    facility closures			7.5				(1.9	)			5.6				7.5				(1.9	)			5.6
Losses at closed facilities, transition and    start-up costs			3.7				(0.8	)			2.9				4.1				(1.0	)			3.1
MEPP liability adjustment due to interest    rates			(12.7	)			3.1				(9.6	)			(27.3	)			6.7				(20.6	)
Gain on sale of certain closed facilities			—				—				—				(14.4	)			3.6				(10.8	)
Other			(0.9	)			0.2				(0.7	)			(0.9	)			0.2				(0.7	)
Adjusted Results		$	536.7			$	(138.6	)		$	398.1			$	1,166.9			$	(283.6	)		$	883.3
Noncontrolling interests											(1.9	)											(4.2	)
Adjusted Net Income										$	396.2											$	879.1

 

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		Three Months Ended June 30, 2021												Nine Months Ended June 30, 2021
		Pre-Tax				Tax				Net of Tax				Pre-Tax				Tax				Net of Tax
As reported		$	328.4			$	(77.4	)		$	251.0			$	676.1			$	(158.2	)		$	517.9
Ransomware recovery costs			9.3				(2.2	)			7.1				29.1				(7.1	)			22.0
COVID relief payments			—				—				—				22.0				(5.4	)			16.6
Grupo Gondi option			—				—				—				22.5				(6.7	)			15.8
Restructuring and other items			6.9				(1.5	)			5.4				19.8				(4.8	)			15.0
Accelerated compensation - former CEO			—				—				—				11.7				—				11.7
Losses at closed facilities, transition and   start-up costs			1.4				(0.3	)			1.1				2.6				(0.6	)			2.0
Loss on extinguishment of debt			—				—				—				1.1				(0.3	)			0.8
Accelerated depreciation on major capital   projects and certain facility closures			—				—				—				0.7				(0.2	)			0.5
Gain on sale of investment			(1.3	)			0.3				(1.0	)			(16.0	)			2.4				(13.6	)
Gain on sale of sawmill			—				—				—				(16.5	)			8.3				(8.2	)
Gain on sale of certain closed facilities			—				—				—				(0.9	)			0.2				(0.7	)
Brazil indirect tax claim			—				—				—				(0.9	)			0.3				(0.6	)
MEPP liability adjustment due to interest   rates			7.7				(1.9	)			5.8				(0.4	)			0.1				(0.3	)
Adjusted Results		$	352.4			$	(83.0	)		$	269.4			$	750.9			$	(172.0	)		$	578.9
Noncontrolling interests											(0.9	)											(3.3	)
Adjusted Net Income										$	268.5											$	575.6

 

We discuss certain of these charges in more detail in “Note 3. Restructuring and Other Costs” of the Notes to Condensed Consolidated Financial Statements.

We also use the non-GAAP financial measure “Consolidated Adjusted EBITDA”, along with other factors such as "Adjusted EBITDA" (a GAAP measure of segment performance our CODM uses to evaluate our segment results), to evaluate our overall performance. Management believes that the most directly comparable GAAP measure to Consolidated Adjusted EBITDA is "Net income attributable to common stockholders". Management believes this measure provides our management, board of directors, investors, potential investors, securities analysts and others with useful information to evaluate our performance because it excludes restructuring and other costs and other specific items that management believes are not indicative of the ongoing operating results of the business. We and our board of directors use this information to evaluate our performance relative to other periods.

Set forth below is a reconciliation of the non-GAAP financial measure Consolidated Adjusted EBITDA to Net income attributable to common stockholders periods indicated (in millions).

 

		Three Months								Nine Months Ended
		June 30,								June 30,
		2022				2021				2022				2021
Net income attributable to common stockholders		$	377.9			$	250.1			$	600.1			$	514.6
Adjustments: (1)
Less: Net income attributable to noncontrolling interests			1.9				0.9				4.2				3.3
Income tax expense			132.7				77.4				193.1				158.2
Other expense (income), net			7.2				(6.4	)			0.7				(13.8	)
Loss on extinguishment of debt			—				—				8.2				1.1
Interest expense, net			78.5				102.5				237.7				279.8
Restructuring and other costs			0.6				6.9				366.3				19.8
Mineral rights impairment			26.0				—				26.0				—
Multiemployer pension withdrawal income			—				—				(3.3	)			—
Gain on sale of certain closed facilities			—				—				(14.4	)			(0.9	)
Depreciation, depletion and amortization			377.3				369.0				1,117.4				1,094.9
Other adjustments			3.4				10.6				3.7				64.3
Consolidated Adjusted EBITDA		$	1,005.5			$	811.0			$	2,539.7			$	2,121.3

 

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The non-GAAP measure Consolidated Adjusted EBITDA can also be derived by adding together each segment's "Adjusted EBITDA" plus "Non-allocated expenses" from our segment footnote. See “Note 6. Segment Information” of the Notes to Condensed Consolidated Financial Statements.

 

Forward-Looking Statements

 

Statements in this report that do not relate strictly to historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the Company’s current expectations, beliefs, plans or forecasts and use words such as “may”, “will”, “could”, “would”, “anticipate”, “intend”, “estimate”, “project”, “plan”, “believe”, “expect”, “target” and “potential”, or words of similar import or meaning or refer to future time periods. Forward-looking statements involve estimates, expectations, projections, goals, forecasts, assumptions, risks and uncertainties. A forward-looking statement is not a guarantee of future performance, and actual results could differ materially from those contained in the forward-looking statement.

 

Forward-looking statements are subject to a number of assumptions, risks and uncertainties, such as developments related to the COVID-19 pandemic, including the severity, magnitude and duration of the pandemic, negative global economic conditions arising from the pandemic, impacts of governments' responses to the pandemic on operations, and impacts of the pandemic on commercial activity, customer and consumer preferences and demand; supply chain disruptions; disruptions in the credit or financial markets; results and impacts of acquisitions, including timing and operational and financial effects from the Company’s recently announced acquisition of Grupo Gondi; economic, competitive and market conditions generally, including the impact of inflation and increases in energy, raw materials, shipping, labor and capital equipment costs; reduced supply of raw materials; the Company’s ability to successfully identify and make performance and productivity improvements and risks associated with completing strategic projects on the anticipated timelines and realizing anticipated financial improvements; the amount and timing of capital expenditures, including installation costs, project development and implementation costs, and costs related to resolving disputes with third parties with which the Company works to manage and implement its capital projects; utilization of real property that is subject to the restructurings due to realizable values from the sale of such property; adverse legal, reputational and financial effects resulting from cyber incidents and the effectiveness of business continuity plans during a ransomware or other cyber incident; fluctuations in selling prices and volumes; intense competition; the potential loss of certain customers; the scope, costs, timing and impact of any restructuring of the Company’s operations and corporate and tax structure; the occurrence of severe weather or a natural disaster or other unanticipated problems, such as labor difficulties, equipment failure or unscheduled maintenance and repair; the Company’s desire or ability to continue to repurchase company stock; and the scope, timing and outcome of any litigation, claims or other proceedings or dispute resolutions and the impact of any such litigation (including with respect to the Brazil tax liability matter). Such risks and other factors that may impact forward-looking statements are more particularly described in the Company’s filings with the Securities and Exchange Commission, including in Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021. The information contained herein speaks as of the date hereof, and the Company does not have or undertake any obligation to update or revise its forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See the “Quantitative and Qualitative Disclosures About Market Risk” section in the Fiscal 2021 Form 10-K for a discussion of certain of the market risks to which we are exposed. While we have experienced inflation and higher interest rates in fiscal 2022, there have been no material changes in our exposure to market risk sensitivities since September 30, 2021.

Item 4. CONTROLS AND PROCEDURES

Our Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this quarterly report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were

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effective as of June 30, 2022 to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

 

There has been no change in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II: OTHER INFORMATION

 

Item 1. LEGAL PROCEEDINGS

 

See “Note 13. Commitments and Contingencies” of the Notes to Condensed Consolidated Financial Statements for more information.

 

Item 1A. RISK FACTORS

 

Certain risks and events that could adversely affect our results of operations, cash flows and financial condition, and the trading price of our Common Stock, are described in the “Risk Factors” section of the Fiscal 2021 Form 10-K. There have been no material changes in our risk factors from those disclosed in the “Risk Factors” section of our Fiscal 2021 Form 10-K.

 

 

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Stock Repurchase Program

 

In July 2015, our board of directors authorized a repurchase program of up to 40.0 million shares of Common Stock. On May 4, 2022, our board of directors authorized a new repurchase program of up to 25.0 million shares of our Common Stock, plus any unutilized shares left from the July 2015 authorization. The 25.0 million shares represents an additional authorization of approximately 10% of our outstanding Common Stock. The shares of Common Stock may be repurchased over an indefinite period of time at the discretion of management. Pursuant to the programs, in the three months ended June 30, 2022, we repurchased approximately 5.4 million shares of Common Stock for an aggregate cost of $265.3 million. The amount reflected as purchased in the condensed consolidated statements of cash flows varies due to the timing of share settlement. As of June 30, 2022, we had approximately 29.0 million shares of Common Stock available for repurchase under the program.

 

The following table presents information with respect to purchases of Common Stock that we made during the three months ended June 30, 2022:

 

Issuer Purchases of Equity Securities
Period		Total Number of Shares Purchased				Average Price Paid Per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs				Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, 2022 - April 30, 2022			3,924,568			$	48.50				3,924,568				5,507,883
May 1, 2022 - May 31, 2022 (1)			1,461,348				51.28				1,461,348				29,046,535
June 1, 2022 - June 30, 2022			—				—				—				29,046,535
Total			5,385,916								5,385,916

 

 

Item 6. EXHIBITS

See separate Exhibit Index attached hereto and hereby incorporated by reference.

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WESTROCK COMPANY

INDEX TO EXHIBITS

 

Exhibit 3.1		Amended and Restated Certificate of Incorporation of WestRock Company, effective as of November 2, 2018 (incorporated by reference to Exhibit 3.1 of WestRock’s Current Report on Form 8-K filed on November 5, 2018).
Exhibit 3.2		Certificate of Correction to the Amended and Restated Certificate of Incorporation of WestRock Company dated November 13, 2018 (incorporated by reference to Exhibit 3.2 of WestRock’s Annual Report on Form 10-K for the year ended September 30, 2018).
Exhibit 3.3		Amended and Restated Bylaws of WestRock Company, effective as of November 2, 2018 (incorporated by reference to Exhibit 3.2 of WestRock’s Current Report on Form 8-K filed on November 5, 2018).
Exhibit 10.1		Credit Agreement dated as of July 7, 2022, among WestRock Company, as a guarantor, WRKCo Inc., as a borrower, WestRock Company of Canada Corp./Compagnie WestRock du Canada Corp., as a borrower, WRK Luxembourg S.à r.l., as a borrower, the subsidiaries of the Company from time to time party thereto, as borrowers, the subsidiaries of the Company from time to time party thereto, as guarantors, the lenders from time to time party thereto and Wells Fargo Bank, N.A., as administrative agent and multicurrency agent (incorporated by reference to Exhibit 10.1 of WestRock’s Current Report on Form 8-K filed on July 11, 2022).
Exhibit 10.2		Amended and Restated Credit Agreement dated as of July 7, 2022, among WestRock Company, as a guarantor, WestRock Southeast, LLC, as the borrower, the subsidiaries of the Company from time to time party thereto, as guarantors, the lenders from time to time party thereto and CoBank, ACB, as administrative agent (incorporated by reference to Exhibit 10.2 of WestRock’s Current Report on Form 8-K filed on July 11, 2022).
Exhibit 10.3		Credit Agreement dated as of July 7, 2022, among WRKCo Inc., the Company, WRK Luxembourg S.à r.l., as a borrower, Multi Packaging Solutions Limited, as a borrower, the subsidiaries of the Company from time to time party thereto, as borrowers, the lenders from time to time party thereto and Coöperatieve Rabobank U.A., New York Branch, as administrative agent (incorporated by reference to Exhibit 10.3 of WestRock’s Current Report on Form 8-K filed on July 11, 2022).
Exhibit 22		List of Guarantor Subsidiaries and Issuers of Guaranteed Securities (incorporated by reference to Exhibit 22 of WestRock’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2020).
Exhibit 31.1*		Certification Accompanying Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by David B. Sewell, Chief Executive Officer and President of WestRock Company.
Exhibit 31.2*		Certification Accompanying Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, executed by Alexander W. Pease, Executive Vice President and Chief Financial Officer of WestRock Company.
Exhibit 32.1#		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by David B. Sewell, Chief Executive Officer and President of WestRock Company, and by Alexander W. Pease, Executive Vice President and Chief Financial Officer of WestRock Company.

 

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Exhibit 101.INS*		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Exhibit 101.SCH*		Inline XBRL Taxonomy Extension Schema.
Exhibit 101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase.
Exhibit 101.DEF*		Inline XBRL Taxonomy Extension Definition Label Linkbase.
Exhibit 101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase.
Exhibit 101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase.
Exhibit 104*		Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101).
* Filed as part of this quarterly report.
# In accordance with SEC Release No. 33-8238, Exhibit 32.1 is to be treated as “accompanying” this report rather than “filed” as part of the report.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

			WESTROCK COMPANY
			(Registrant)
Date:	August 5, 2022	By:	/s/ Alexander W. Pease
			Alexander W. Pease
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer and duly authorized officer)

 

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